For VCs, the game right now is musical chairs

In many ways, there has never been a better time to be a venture capitalist. Nearly everyone in the industry is raking in money, either through long-awaited exits or because more capital flooding into the industry has meant more money in management fees  — and sometimes both.

Still, a growing number of early-stage investors are becoming wary about the pace of dealmaking. It’s not just that it’s a lot harder to write checks at what feels like a reasonable clip at the moment, or that most VCs feel they can no longer afford to be price sensitive. Many of the founders with whom they work are being handed follow-on checks before figuring out how best to deploy their last round of funding.

Consider that from 2016 through 2019, an average of 35 deals a month featured rounds of $100 million or more, according to the data company CB Insights. This year, that number is closer to 130 of these so-called mega-rounds per month. The froth is hardly contained to maturing companies. According to CB Insights’s data, the median U.S. Series A valuation hit $42 million in the second quarter, driven in part crossover investors like Tiger Global, which closed 1.26 deals per business day in Q2. (Andreessen Horowitz wasn’t far behind.)

It makes for some bewildering times, including for longtime investor Jeff Clavier, the founder the early-stage venture firm Uncork Capital. Like many of his peers, Clavier is benefiting from the booming market. Among Uncork’s portfolio companies, for example is LaunchDarkly, a company that helps software developers avoid missteps. The seven-year-old company announced $200 million in Series D funding last month at a $3 billion valuation. That’s triple the valuation it was assigned early last year.

“It’s an awesome company, so I’m very excited for them,” says Clavier.

At the same time, he adds, “You have to put this money to work in a very smart way.”

That’s not so easy in this market, where founders are inundated with interest and, in some cases, are talking term sheets after the first Zoom with an investor. (“The most absurd thing we’ve heard are funds that are making decisions after a 30-minute call with the founder,” says TX Zhou, the cofounder of L.A.-based seed-stage firm Fika Ventures, which itself just tripled the amount of assets it’s managing.)

More money can mean a much longer lifeline for a company. But as many investors have learned the hard way, it can also serve as a distraction, as well as hide fundamental issues with a business until it’s too late to address them.

Taking on more money also oftentimes goes hand-in-hand with a bigger valuation, and lofty valuations comes with their own positives and negatives. On the plus side, of course, big numbers can attract more attention to a company from the press, from customers, and from potential new hires.  At the same time, “The more money you raise, the higher the valuation it is, it catches up with you on the next round, because you got to clear that watermark,” says Renata Quintini of the venture firm Renegade Partners, which focuses largely on Series B-stage companies.

Again, in today’s market, trying to slow down isn’t always possible. Quintini says that some founders her firm has talked with have said that they’re not going to raise any more, explaining that they cannot go faster or deploy more than their business model is already supporting For others, she continues, “You’ve got to look at what’s happening around you, and sometimes if your competitors are raising and they’re going to have a bigger war chest and [they’re] pushing the market forward and maybe they can out-hire you or they can outspend you in certain areas where they can generate more traction than you,” that next check, often at the higher valuation, begins to look like the only path to survival.

Many VCs have argued that today’s valuations make sense because companies are creating new markets, growing faster than before, and have more opportunities to expand globally, and certainly, in some cases, that it is true. Indeed, companies that were previously believed to be richly priced by their private investors, like Airbnb and Doordash, have seen their valuations soar as publicly traded companies.

Yet it’s also true that for many more companies, “valuation is completely disconnected from the [companies’] multiples,” says Clavier, echoing what other VCs acknowledge privately.

That might seem to be the kind of problem that investors love to face. But as been the case for years now, that depends on how long this go-go market lasts.

Clavier says that one of his own companies that “did a great Series A and did a great Series B ahead of its time is now being preempted for a Series C, and the valuation is just completely disconnected from their actual reality.”

He says he’s happy for the outfit “because I have no doubt they will catch up. But this is the point: they will have to catch up.”

For more from our conversation with Clavier, you can listen here.

Subscription-based Bright Cellars lands more funding to personalize its wines

Bright Cellars, a six-year-old subscription-based wine seller has, like many upstarts, evolved over time. While it once sent its club members third-party wines that fit their particular profiles, Milwaukee, Wisconsin-based Bright Cellars says it’s now amassing enough data about its customers through its “palate” quizzes that it no longer sells wines made by other brands. Instead, while some of its “original” offerings are admittedly sold by other labels under different names, it is increasingly finding success by directing its winemaker partners to tweak the recipe, so to speak.

“We’re optimizing wine like you might optimize a more digital product,” says co-founder and CEO, Richard Yau, a San Francisco native whose startup entered into a regional accelerator program early on and stayed, though the company is now largely decentralized.

We talked earlier today with Yau about that shift, which investors are supporting with $11.2 million in Series B funding, led by Cleveland Avenue, with participation from earlier backers Revolution Ventures and Northwestern Mutual. (The company has now raised roughly $20 million altogether).

Yau also talked about industry trends that he’s seeing because of all that data collection.

TC: You say you’re building a portfolio of wines. What does that mean?

RY: We don’t own any land. We’re working primarily with suppliers [as do big companies like Gallo and Constellation], but at a larger scale than before, so we now get to shape what wines taste like and look like, and we can optimize across variables like how sweet should this wine be? How acidic? What do we want its color and brand and label to look like and which segment of our customers will really enjoy this wine the most?

TC: What is one of your concoctions?

RY: We have a sparkling wine that’s produced in the Champagne method — not a Champagne wine; it’s a domestic wine — using grape varietals that no one uses for sparkling wine, and it’s one of the top-rated wines on our platform. Sparkling wine has been really good for us.

TC: How many subscribers do you have?

RY: We can’t share that, but we saw an acceleration in not just new subscribers throughout the pandemic but also in terms of seeing a larger share of [customers’] wallets going to D2C, and that impacted us pretty positively. Even as things eased up over the summer, we saw that people were cooking and eating at home more [and drinking wine].

TC: What’s the average price of a bottle of wine on the platform?

RY: $20 to $25.

TC: Where are your grape suppliers?

RY: A lot are on the West Coast, in Washington and California, but we also have grape suppliers internationally, including in South America and Europe.

TC: How many wines do you offer, and how long do you trial a wine?

RY: We’ve tested around 600, and at any given time, we’ll have 40 to 50 wines on the platform. We don’t stock everything forever; those that don’t do as well, we basically eliminate.

TC: A lot of D2C brands eventually branch into real-world locations. You aren’t doing that. Why not?

RY: It’s possible that we might at some point, but we like being D2C and it makes a lot of sense in a world where our members now work from home and are home to receive packages. It lines up with e-commerce trends in general. If you’re not buying your groceries at the store anymore, you aren’t buying wines at the store, either.

TC: From where are these bottles shipped?

RY: From a variety of places, but primarily from Santa Rosa [in the Bay Area].

TC: Have you seen the impact the weather is having on California winemakers, some of whom are now spraying sunscreen on their grapes to protect them?

RY: [Climate change] has certainly affected the wine industry. One of the fortunate things about us is we have flexibility in the suppliers we’re working with, so from a business-health perspective, we haven’t been as affected by that. Because a lot of our operations are in California, we did a couple of years ago have some interruptions with distribution where we weren’t able to ship some days; we were also impacted by warm temperatures. But fortunately, so far for this year, we haven’t had any operational or supply-chain disruptions.

TC: Have you been approached by one of legacy firms about a partnership or acquisition?

RY: We’ve had conversations, more in terms of partnerships because we have lots of data and can help them. For example, we can launch a new wine and get feedback almost like a focus group to figure out who likes what. We can split test two different blends for a wine and figure out which does better. That’s where conversations with legacy wine companies have happened.

TC: So they’d pay you for your data.

RY: We’re not opposed to selling data in the future, but we’ve approached it more like, here’s an opportunity to learn about how innovation works at a larger wine company. We don’t expect to be able to do what Constellation does well — with its large salesforce and distributors in every state — but what we can do in a complementary way is understand the consumer.

TC: What have you learned that might surprise outsiders?

RY: Petite sirah [offerings] do as well, if not better than, cabernet and pinot noir on the platform. Cab and pinot are fully 50 times the market size of petite sirah, but we see that our members really like it.

People also like merlot a lot more than they think — pretty much across all demographics. People like to hate merlot, but when we look at red blends that do well . . .

TC: What do people have against merlot?

RY: [Laughs.] Have you ever seen “Sideways?” That has something to do with it, still. Meanwhile, pinot noir remains popular, but people don’t like it as much as [other wine sellers] think.

This Sequoia- and Henry Kravis-backed prediction market wants to turn opinions into money

More than 15 years ago, the Philadelphia Stock Exchange, which was acquired by Nasdaq in 2008, and another since-sold exchange called HedgeStreet, both announced they intended to offer something called event contracts to investors. The idea was to allow people to bet “yes” or “no” on questions about future events that were structured as all-or-nothing options, and to pay a fixed amount when an outcome either occurred or did not.

At the time, it was a novel but controversial idea; it also failed to generate enough interest from investors to succeed. Now, Kalshi, a young, New York-based, 33-person startup is testing the waters anew and it’s doing so with the help of some heavyweight investors that include Sequoia Capital, Henry Kravis, Charles Schwab and SV Angel that have collectively provided the company with $36 million in funding to date.

Their enthusiasm ties in part to a major hurdle that Kalshi — founded by former MIT classmates and researchers Tarek Mansour and Luana Lopes Lara — overcame last year by winning approval from the Commodity Futures Trading Commission to run a derivatives exchange.

Mansour says Kalshi’s small team worked closely with the agency at every turn to ensure it would pass muster. “This was quite the process, as the more problems you face, the more problems emerge,” he says now of the process. Bringing aboard a former head of clearing at the CFTC as Kalshi’s head of regulation also helped, he says.

Kalshi is also emerging during a time when people are consuming more, and sometimes narrower, news stories through their social media feeds and elsewhere.

That matters, suggests Lopes Lara, because the “contracts are pretty much tied to news and things that are going on in the world and relevant in the world right now.” Indeed, though a tie-up with a social media platform would probably be ideal, one way the startup is getting in front of information junkies is advertising on the question-and-answer site Quora. (Other, more “partnership-based” tie-ups are coming, add the founders.)

In the meantime, Kalshi is on a mission to prove it can entice a new generation of traders — both retail and institutional, accredited and unaccredited — to bet on all kinds of possible outcomes, like whether or not Turkey will join the European Union by June of next year, which is one contract on the platform currently.

Kalshi — which has a clearinghouse partner that holds the funds from all users to ensure that every contract is collateralized —  is seeing some traction. Since launching in March, the platform has attracted 4,000 users who have agreed to its “yes” or “no” contracts that have just two outcomes and that pay either 100% if an investor bets correctly and zilch if the investor bets wrong. It’s a respectable but conservative amount of users.

The founders suggest things will begin to pick up at a faster clip this fall, given that Kalshi has a “few avenues for acquiring users and growing our user base,” says Mansour.

One if these is the consumer product that people have so far been experimenting with and which is available to anyone who wants to enter into a contract at its website.

More impactful, potentially, Kalshi also has “a few brokers that we’re going to partner with . . . to allow people to trade event contracts the same way they trade stocks, or commodities, or options on their preferred brokerage app,” says Mansour, adding that “by brokers, I mean the Fidelities and Charles Schwabs of the world.”

Adds Lopes Lara, “People who use Robinhood or Coinbase or other brokers are our first target, given how much they already understand about investing and are interested in these types of questions and event-based thinking for their investments.”

What interested parties should know not to expect are event contracts around sports outcomes (“that’s very much like gambling, and we don’t [facilitate] that,” says Lopes Lara.)

Owing to federal regulations, certain other areas are also very much off limits, including events contracts tied to geopolitical events, like whether a war will breakout, and political events. (For example, though users might be tempted to bet on whether or not California Governor Gavin Newsom will be recalled in September, they’d have to drum up that action elsewhere.)

As for what happens if Kalshi takes off  and other brokerages or other large financial institutions attempt to create their own event contract offerings, Mansour insists that it wouldn’t be so easy for them. “A lot of the work that we’ve done over the last two-and-a-half years is [intellectual property]. Every single detail of operations was built for event contracts. It would take a bit of time — especially for some of these bigger institutions — to really get into the space.”

Only time will tell.

Other investors in Kalshi include Y Combinator and Tinder cofounder Justin Mateen, a co-founder of dating app Tinder. Alfred Lin, the former Zappos executive turned Sequoia Capital investor, sits on the company’s board.

Prive has raised $1.7 million to build a more configurable e-commerce subscription platform

Prive, a months-old, San Francisco-based startup founded by two former Uber product managers, just raised $1.7 million in pre-seed funding to create what it describes as a far more customizable e-commerce subscriptions platform for D2C brands.

The round was co-led by Patrick Chung and Brandon Farwell at XFund and Ben Ling from Bling Capital, with participation from Defy Partners, Halogen Ventures, and Uber executives.

Founded by Claudia Laurie and Alex Craciun — who both spent two-and-a-half years at Uber and decided, based on their learnings about pricing and incentives, to leave the company earlier this year —  Prive aims to better enable small retailers to compete with behemoths like Amazon.

The broad idea is that by plugging into existing APIs from Shopify and other e-commerce platforms, Prive can form an opinion that it sells to merchants about what customers tend to buy on a recurrent basis. Maybe it sees that people who buy razors also tend to buy toothbrushes on a similar cadence, for example. It passes that information along, then helps the brand create more customized, and flexible, offerings so that their shoppers are presented with items they might, as well as can more easily cancel items

“The market opportunity is huge, and the existing [e-commerce subscription] tools are just scratching the surface,” notes Laurie. Indeed, according to the group eMarketer,  subscription e-commerce sales have grown 41% from the start of the coronavirus pandemic, and it foresees that 3% of US retail e-commerce sales will come from subscriptions this year, totaling $27.67 billion. That’s up from $10 billion in just two years’ time.

Of course, a lot has yet to be built, which is where the pre-seed funding comes in. Right now, Prive is a seven-person team with some serious competition, namely from Recharge, a seven-year-old, Santa Monica, Calif.-based subscription e-commerce company that in May raised $277 million in growth capital at a post-money valuation of $2.1 billion. As of that announcement, Recharge had roughly 330 employees and was fueling the subscription service for what it said was 15,000 merchants and 20 million subscribers worldwide.

Other rivals include nine-year-old, Bold Commerce (it has raised $44 million altogether), and 10-year-old, Chargebee, which has raised around $220 million over the years, according to Crunchbase data.

“E-commerce ‘subscription’ is an incredibly hot buzzword,” acknowledges Craciun, but he also thinks the today’s current product offerings are just scratching the service.

Clearly, investors are willing to gamble that he’s right — and that Prive could be the team to prove it.

“Current tools can create more headaches than they actually solve,” says Craciun. “There is a lot of rigidity in today’s subscriptions that makes it very difficult to identify the right recurring mix of offerings. We’re here to break down that mental model.”

The SEC and the DOJ just charged this startup founder with fraud, saying he lied to Tiger and others

Today, both the U.S. Department of Justice and the Securities and Exchange Commission charged Manish Lachwani, cofounder of a mobile app testing company Headspin, with fraud. The SEC says he violated antifraud provisions and the civil penalties it’s seeking include a permanent injunction, a conduct-based injunction, and an officer and director bar of Lachwani.

The DOJ, which actually arrested Lachwani today, has accused him of one count of wire fraud and one count of securities fraud, and the associated penalties if he’s found guilty are are more harsh, including, for wire fraud, a maximum sentence of 20 years in prison and a fine of $250,000. If he’s found guilty of securities fraud, he faces a maximum sentence of 20 years in prison and a fine of $5,000,000.

Both the the SEC and the DOJ say Lachwani — who led the company as CEO until May of last year — defrauded investors out of $80 million by falsely claiming that his company, Headspin, had “achieved strong and consistent growth in acquiring customers and generating revenue” when he was pitching its Series C round to potential backers.

By the SEC’s telling, his apparent bluster was largely an attempt to secure the round at a so-called unicorn valuation. That apparent plan worked, too, with Headspin attracting coverage in Forbes in February of last year after Dell Technologies Capital, Iconiq Capital and Tiger Global Management provided the company with $60 million in Series C funding at a $1.16 billion valuation. Forbes reported at the time that the valuation was double the valuation investors  assigned HeadSpin when it closed its Series B round in October 2018.

The SEC also says that Lachwani was looking to enrich himself, saying he did so “by selling $2.5 million of his HeadSpin shares in [that] fundraising round during which he made misrepresentations to an existing HeadSpin investor.”

The DOJ’s federal complaint offers many more details. It says that the success of Headspin — a six-year-old, Palo Alto-based company that helps apps and devices work in different environments around the world and which sells subscriptions to its service – was being misrepresented to investors by Lachwani beginning in at least early November 2019, when the company was fundraising.

The complaint alleges that “in materials and presentations to potential investors, Lachwani reported false revenue and overstated key financial metrics of the company. . . he maintained control over operations, sales, and record-keeping, including invoicing, and he was the final decision maker on what revenue was booked and included in the company’s financial records.” It says that in its investigation, it discovered “multiple examples” of Lachwani “instructing employees to include revenue from potential customers that inquired but did not engage Headspin, from past customers who no longer did business with Headspin, and from existing customers whose business was far less than the reported revenue.”

Among other materials, Lachwani “provided investors false information that overstated Headspin’s annual recurring revenue . . . by approximately $51 to $55 million,” says the DOJ.

According to the complaint, Lachwani’s fraud unraveled after the company’s Board of Directors conducted an internal investigation that revealed significant issues with HeadSpin’s reporting of customer deals and revised HeadSpin’s valuation down from $1.1 billion to $300 million.

Indeed, in August of last year, The Information reported that “after an internal review of financial irregularities forced [Headspin] to restate its financials,” the company planned to lower the value of its Series C stock by nearly 80%.

The outlet reported at the time that Lachwani had been replaced by another executive. That person, according to LinkedIn, is Rajeev Butani, who joined Headspin as its chief sales officer around the time its Series C round was being announced in February of last year.

Nikesh Arora, a former SoftBank president, the current CEO and chairman of Palo Alto Networks, and a now-former board member of Headspin, helped lead the internal review, said The Information.

The SEC’s investigation is continuing, it says. Meanwhile, the DOJ notes in its announcement that “a complaint merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.”

In the meantime, it doesn’t look very promising right now for Lachwani, who, according to Forbes, previously sold a mobile cloud business to Google and wound up co-founding Headspin after Yahoo cofounder Jerry Yang introduced him to Brien Colwell, a former Palantir and Quora engineer was working at the time on a different startup.

Colwell remains with Headspin as its CTO. He has not been named in either the SEC or the DOJ’s complaints relating to Headspin. The company itself, which has reportedly been cooperating with the government’s investigation, was also not charged.

Pictured above, left to right, Headspin founders Lachwani and Colwell.

Fika Ventures nearly triples its assets under management: “It’s definitely a crazy time”

Fika Ventures is a five-year-old, L.A.-based seed stage fund that has been funding mostly business-to-business startups, as well as fintech companies and a sprinkling of healthcare IT startups — as long as they don’t involve hardware or FDA approval.

The firm’s investors apparently think it’s doing a decent job. After raising $41 million for its debut fund, followed by a $77 million fund that Fika closed in 2019, the outfit is today announcing a third flagship fund with $160 million to invest, along with an opportunity-type fund with $35 million in capital commitments.

That’s a major endorsement for such a young firm. Still, even with upwards of 10 promising portfolio companies — including Formative, a Santa Monica, Calif.-based platform for K-12 teachers to create assessments that raised $70 million in June; Pipe, a Miami-based startup that lets companies sell their recurring revenue streams on its platform and raised $250 million at a $2 billion valuation in May; and Papaya Global, an Israeli startup that’s sells payroll, hiring, onboarding and compliance service and raised $100 million earlier this year — it’s getting harder right now to do what they do, say firm cofounders Eva Ho and TX Zhou. “It’s definitely a crazy time,” Ho offers.

We had a candid conversation with the pair yesterday, edited lightly for length below.

TC: This is now one of the bigger seed-stage firms in L.A. What percentage of your investments are local?

EH: We feel like we have a home court advantage here, so about 40% of our deals are here, then the rest are in markets like Seattle, New York, Boston, Austin, Chicago. We recently did a deal in Toronto because they have a nice AI community there. But we still very much believe in needing boots on the ground so go after geographies where we can fly to board meetings and be there physically to support [our founders] when they need us.

TC: Your new flagship fund is more than twice the size of your last fund. How will that impact how much you invest?

TZ: Our check sizes will grow a bit in tandem with the market. As you know, seed rounds are now quite a bit larger. I think initial checks will be in the $1 million to $3 million range; with the last fund, we reserved up to $6 million per company and now we’ll reserve up to $10 million.

TC: Tell us a little about investing in a market where everybody is a founder, and everyone is also an investor. 

EH: It’s definitely a crazy time. It feels like we’re running a marathon and trying to be in a sprint. We have to have the long view and make bets with that horizon in mind, but at the same time, the decisions for initial and follow-on rounds have gotten just a lot faster.

TC: How do you continue to make good decisions when things are moving so fast?

EH: The things we’ve been doing include increasing the size of the team and doing more work upfront on an industry so that we have more prepared mind coming in. But it continues to be a struggle because everything has been sort of compressed.

TZ: I think in the past, seed funds could get away with being pure generalists, even within sectors. But we’ve been forced over the last 12 months to really understand even more sub sectors within each of our verticals. For example, within fintech, we’ve kind of taken a deep dive in real estate and insurance, and that that helps us come into deals [prepared] given how fast they’re moving these days.

TC: What is the fastest deal you’ve done?

TZ: In the past, deals that we were looking at were getting done in two to three weeks; now the average time is probably a week to a week-and-a-half to make a final decision. I’d say the fastest we’ve moved is in five days, in a situation where we’ve known the entrepreneur for years so there was strong validation on a personal level. There was also good founder-market fit in terms of what they wanted to do.

EH: We just pull ourselves out of certain rounds that are moving [super fast] and/or valuation expectation upfront is just crazy. You see a lot of pre-seed rounds right now that are pre-product, pre-traction, pre-revenue that are done at $15 million or $20 million or $30 million post-money valuations. We’ll certainly flex for the right things, but there is just a lot of froth in the market right now.

TC: If the terms are right, are you funding pre-seed, pre-product, pre-traction teams?

EH: To be very frank, we have moved a little earlier in some cases. In the first fund, we [invested about] 15% in pre-seed startups, which to us means very early product and very early traction and sometimes no traction. In fund two, we’ve invested maybe 25% in pre-seed deals because the really good founders who’ve been shown that they’re able to execute and have vision — they get snapped up quickly, so you have to adapt and evolve a bit and move downstream a little more. That said, I think almost all the companies we fund have some sort of [minimum viable product] and some initial design partners in place, even if they don’t have any meaningful revenues yet.

TC: What percentage of your investments in your most recent fund have gone to repeat founders?

TZ: I’d say 15% to 20%. Obviously, we can’t and don’t limit ourselves to [serial entrepreneurs], but with repeat founders, deals move even faster than before.

TC: What’s the most absurd thing you’ve seen in this go-go market?

TZ: I think the most absurd thing we’ve heard are funds that are making decisions after a 30-minute call with the founder.

TC: Would you ever pass on a company because you’re not that excited about the rest of the cap table?

TZ: The speed of deals has forced us to really quickly hone in on what we care about. In the past, we had the luxury of having this long laundry list of things we wanted to check off and in a positive way, we’ve been forced to hone in on the three to five things that we really care about for each deal.

The bigger challenge is that investors who decide in 30 minutes create unrealistic expectations by founders. Sometimes they expect everyone to process information that quickly, and I think what they’re missing is that these funds are not processing the information.

TC: What’s one way you get founders to slow down and pay attention?

TZ:  We actually give every founder that we’ve come close to making a decision on a complete list of every single founder that we’ve backed in the past with their contact information.

Initially, we did this to help us win deals, but I think very quickly founders get a sense of what it’s like to work with us, too.

Stewart Butterfield and Bret Taylor are coming to Disrupt

When Salesforce acquired Slack at the end of last year for almost $28 billion, the deal seemed on its face to make sense, given that the coronavirus pandemic accelerated already growing demand for tools that enable people to work remotely and that roughly 90% of Slack’s enterprise customers already used Salesforce.

Today, the question is: How well are things going?

Salesforce just last week announced some initial integrations with Slack, including introducing so-called account and deal Slack rooms to its “Sales Cloud,” which Salesforce says will allow sales teams to interact around a customer deal cycle. Rob Seaman, SVP for Slack at Salesforce, told TechCrunch last week that, more broadly, “We really want Slack to be the primary engagement surface for our users, their communications, their work, their workflows and the processes and the apps they support.”

But these kinds of public pronouncements don’t get to the heart of what’s happening inside the company. That’s where TechCrunch steps in. At TechCrunch Disrupt happening September 21-23, we are thrilled to be sitting down with both Bret Taylor — the entrepreneur and former Facebook executive who is now the No. 2 executive at Salesforce — and famed Slack founder Stewart Butterfield, to learn far more about their collective mission to take on Microsoft, and what, if anything, the market doesn’t understand about the tie-up between Salesforce and Slack. (Saleforces’s shares are only up slightly from a year ago and priced 16% higher than they were at the start of this year, compared to the S&P 500, which is up 35%.)

Who reports to whom? How independently is Slack being run? How will the two judge the success of the merger, and by when? These are just a few of the many questions we have for these two iconic executives, whose candid conversation with TC is one you won’t want to miss.

To participate in this year’s virtual show, check out the handful of pass options with discounts now available for founders, students and nonprofitsGet your ticket soon, though; prices more than double on September 20. We hope to see you online.

Lux Capital’s Deena Shakir is helping judge Startup Battlefield at this year’s Disrupt

Deena Shakir is a partner at Lux Capital, where she looks to invest in technologies that are streamlining analog industries while also improving lives and livelihoods. Among the companies she has backed, for example, are Shiru, which is leveraging computational design to create enhanced proteins to help feed the world; and AllStripes, which aggregates and analyzes medical records, then sells the de-identified data to pharma companies to help them develop medicines.

It’s not a surprise that Shakir is focused on empowering people. Shakir’s father is a psychiatrist and as she once told us, “for a hot minute, I thought I was going to be a doctor myself.” Instead, after attending Harvard, then Georgetown’s School of Foreign Service, she wound up working for the State Department during the Obama administration, then headed to Google. She would stay for the next seven years, spending the last of them with GV, Google’s venture unit. There, her work revolved in part around some of the alternative protein companies in GV’s portfolio. Then, in 2019, she was poached by Lux.

Indeed, while Shakir might have once imagined working with people on an individual basis, she has become an increasingly sought-after investor in startup teams, which is why we couldn’t be more excited that she’s able to join us this year for TechCrunch Disrupt. Specifically, we’re thrilled that Shakir will be judging our Startup Battlefield competition, the centerpiece of Disrupt every year and oftentimes a life-changing event for the winning team — and often runners-up, too. Consider that past winners include Vurb, Dropbox, Mint and Yammer, while runner-up Cloudflare currently boasts a market cap of $26 billion.

It’s because we take the competition — and our record to date — so seriously that we’re exceedingly thankful to savvy investors like Shakir, who ask the right questions, and make the tough decisions when it comes time to decide which teams to move along.

Want to watch and judge from home? With our entirely virtual event this year, you’re more than welcome to join us from the comfort of your home or office (and let us know what you think of the startups within the many networking forums you’ll find).

To watch this year’s 20+ startups compete for $100,000 — and to interact with more than 100 hours of content and thousands of enthusiastic startup fans — make sure to book your pass to TC Disrupt, happening September 21-23 — all for less than $100.

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Arianna Simpson of a16z on Yield Guild Games, the firm’s newest bet on crypto + gaming

As one of four general partners at Andreessen Horowitz who are now investing the venture firm’s third crypto fund, a $2.2 billion vehicle, Arianna Simpson is very focused on how to return that capital and much more to the firm’s limited partners.

Toward that end, she has been more focused of late on startups that combine crypto with gaming. Last month, for example, her team co-led an investment in Virtually Human Studio, the startup behind a digital horse racing service Zed Run, wherein users buy, sell and breed virtual horses whose value rises depending on their performance against other virtual horses. (Each is essentially a non-fungible token, or NFT, meaning it is unique.)

Simpson is relatedly intrigued with NFT-based “play-to-earn” models, wherein gamers can earn cryptocurrency that they can then cash out for their local currency if they so choose. Indeed, a16z is announcing today that it just led a $4.6 million investment in the tokens of Yield Guild Games (YGG), a decentralized gaming startup based in the Philippines that invites players to share in the company’s revenue by playing games like “Axie Infinity,” a blockchain-based game where players breed, battle and trade digital creatures named Axies in order to earn tokens called “Small Love Potion” that they can eventually cash out. YGG lends players the money to buy the Axies and other digital assets to start the game, so they can start earning money. (The obvious hope is that they earn more than they have to pay YGG for the use of its assets.)

We talked yesterday with Simpson — who joined a16z after first backing some of the same startups, including the blockchain infrastructure company Dapper Labs and the global payment platform Celo — to learn more about what’s happening at the intersection of crypto and gaming. She also shared which platforms a16z tracks most closely to identify up-and-coming crypto startups. Our chat, edited for length, follows.

TC: Zed Run is really interesting. How did you first come across this digital horse racing business?

AS: I think it was crypto Twitter, which honestly is where we’re finding a lot of our gaming investments. The community on there is really incredible and often one of the first places where really exciting new projects are surfaced.

Zed really marks the advent of kind of a new type of more involved gameplay in crypto. If you look at [the collectibles game] CryptoKitties, it was one of the first NFT-based games that really caught the attention of people outside of the crypto sphere. Zed is definitely a derivative extension in the sense that you have a digital animal that you’re playing with, but the gameplay is much more complex, and the thing that’s been incredible to watch is just how excited the community is. People are putting together all kinds of very sophisticated guides around how to play the game, to read [race] courses, how to do all kinds of different things in the game, and tens of thousands of people all over the world [are playing].

TC: Maybe these already exist, but are there endless opportunities across verticals here, like, say, a digital car racing equivalent or a UFC-style equivalent, or are people buying and betting on digital fighters and hoping they’ll rise in value?

AS: There’s an incredibly broad range of possibilities in terms of what’s happening and what will happen in the universe of crypto games. I think at the core of this movement is really the idea of giving more of the value and ownership in these game assets back to the players. That’s something that has historically been a problem. You might spend years and years building up your arsenal of skins or in-game assets, and then a game will change the rules, take [some of your winnings] away from you or do any number of things that can leave players feeling very disappointed and kind of ripped off. The idea [with blockchain-based games] is to make them more open and allow players to have actual ownership in the space themselves.

TC: Which leads us to your newest investment, Yield Guild Games, or YGG. Why did this company capture the firm’s attention?

AS: During the pandemic, a lot of people were put out of work and not able to provide for themselves and for their families. This time kind of coincided with the rise of a game called “Axie Infinity,” one of the first games to pioneer a play-to-earn model, which is becoming a very important theme in crypto games.

In order to play “Axie Infinity,” you need to have three Axies, and generally speaking, that means you need
to buy them upfront. Obviously if you’re out of work, you have no money [so buying these digital pets] can become a very challenging proposition. So [YGG founder] Gabby Dizon in the Philippines, who played “Axie Infinity” started lending out his Axies so other people could play the game and earn tokens that could then be converted to local currency. And so basically YGG emerged as sort of the productization of what they were doing here, so YGG either purchases or breeds in-game assets that are yield-earning, then loans them to out “scholars,” who are the recipients of these in-game assets, and YGG then takes a small cut of the in-game revenue that the players generate over time.

TC: Does a “scholar” have to be a sophisticated player?

AS: There are managers who basically manage teams of scholars; they’re the ones who effectively decide who to bring into the guild.

TC: So these Axies can be cashed out for currency, but where, and who is buying them?

AS: They can be bought or sold on exchanges and other players are buying them if they need to breed in “Axie” and needs some [Axies]; others are buying them for investment purposes. Also, they aren’t necessarily selling the NFTs but they may be selling the tokens that they earn as part of the gameplay.

TC: There are now 5,000 of these scholars playing the game. Are they mostly in Southeast Asia?

AS: A majority of the players and scholars are in Southeast Asia, but we’re seeing really strong international growth as well, both for “Axie Infinity” and YGG, in particular. At this point, scaling internationally is definitely a core focus for the YGG team.

TC: You mentioned crypto Twitter. What about Discord and Reddit? Where else are you looking around for new crypto projects that are bubbling up and capturing people’s imagination?

AS: All of the above. Discord in particular is very actively used by the crypto community, and the thing that’s interesting there is it really allows you to get a pulse for how active a community is, how engaged people are, how frequently they’re talking, and what they’re talking about. It gives you a look into the community at large and that’s a very important thing to consider when looking to make an investment or assess the health of a project.

MobileCoin closes on $66 million in equity in Series B round

MobileCoin, a cryptocurrency business that counts founder Moxie Marlinspike of the encrypting messaging app Signal as its earliest technical advisor, has raised $66 million in Series B funding from a long list of investors, including Alameda Research, Berggruen Holdings, BlockTower Capital, Coinbase Ventures, Marc Benioff’s TIME Ventures, Vy Capital, and earlier backers General Catalyst and Future Ventures.

The all-equity round brings the four-year-old, San Francisco-based company’s total funding to $107 million altogether, including a $30 million round led by Binance Labs back in 2018. According to founder and CEO Joshua Goldbard, the newest round values the outfit at $1.066 billion.

As we reported earlier this year, MobileCoin is focused on enabling privacy-protecting payments made through “near instantaneous transactions” over one’s phone. Indeed, a month after we published that piece, Signal rolled out support for MobileCoin as a payment feature that its users (only in the UK for now) can use to pay for a service or product while enjoying greater privacy than might be possible otherwise.

Marlinspike told Wired back in April that because MobileCoin is a so-called privacy coin designed to protect users’ identities and the details of their payments on a blockchain, that it’s an ideal fit for Signal. “There’s a palpable difference in the feeling of what it’s like to communicate over Signal, knowing you’re not being watched or listened to, versus other communication platforms. I would like to get to a world where not only can you feel that when you talk to your therapist over Signal, but also when you pay your therapist for the session over Signal.”

According to Goldbard, MobileCoin is also being used to transact by users of Mixin Messenger, is a China-based open-source private messenger based on Signal Protocol that enables individuals to send cryptocurrencies to their phone contacts.

MobileCoin’s actual digital coins have fluctuated wildly in value since they began trading in December of last year on the cryptocurrency exchange, FTX, run by entrepreneur Sam Bankman-Fried, who also founded the quantitative crypto trading firm Alameda Research (which just invested in MobileCoin).

It is also available to buy and sell on the non-U.S. crypto trading platforms Bitfinex, BigOne, and HotBit. Goldbard says there’s no reason that U.S. exchanges couldn’t also list the coin for trade, though that’s not the case currently.

“It’s entirely up to [them] when they list assets, and no one knows ahead of time when your asset will be listed,” Goldbard offers, dismissing questions about U.S. regulators who’ve cracked down on similar efforts and pointing instead to MobileCoin’s relatively newness as its biggest challenge right now. “Most coins take a long time to list, to be honest.”

As for whether Goldbard or his early team members have sold some of company’s coins — they spiked in price this past spring — he says that “management has not sold any coins.” Asked whether the same is true of Marlinspike, Goldbard says that he “can’t speak for Moxie.” (Marlinspike told Wired in April that neither he nor Signal owned any MobileCoins at the time. We’ve since asked the company whether Marlinspike has ever owned any MobileCoins and also whether he owns or previously owned shares in MobileCoin as an early advisor to the company and have yet to hear back.)

Even assuming that MobileCoin is more secure than other options, it is still not foolproof. Among the risks involved in storing cryptocurrency on a phone are potentially losing it if the phone is left unlocked or the radio on the phone is hacked or if, say, iOS itself is hacked. 

It does offer another advantage, though, argues Goldbard. He says MobileCoin is more environmentally friendly than  cryptocurrencies like Bitcoin that rely on ‘proof of work,’ where individuals on a network compete with computing power to solve cryptographic puzzles and consume large amounts of electricity along the way.

MobileCoin instead relies on a mechanism called a “federated byzantine agreement,” wherein different validators —  people who agree to store data, process transactions, and add new blocks to the blockchain to earn more cryptocurrency — decide which other validators they trust, and when enough circles of trusted validators overlap, consensus is reached. The algorithm requires fewer people and less energy while remaining decentralized, says Goldbard.

MobileCoin currently has 40 employees and is “hiring as fast as possible,” says Goldbard. Tragically, the company’s head of engineering, Toby Segaran, who was previously an engineer with both Google and Reddit, passed away unexpectedly last week. Meanwhile, MobileCoin brought aboard is first head of compliance, David Ackerman, last month.